Sat, Oct 02, 1999 page17

• Chunghwa faces a rate dilemma

  PROFITS The government has stipulated that the state-run phone company make a rate of return of 8.5 to 11.5 percent per year, a significant fall on recent years which have seen massive profit figures

  • By Tu Po-heng / STAFF REPORTER
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  State-run Chunghwa Telecom Co. (中華電信) is on the horns of a dilemma ? it's under pressure to reduce its mobile phone rates, but if it were to do so, it would attract strong criticism from private mobile phone services providers.

  According to Chunghwa Telecom, the investment rate of return from its mobile phone business topped 165 percent for the fiscal year 1998, much higher than the 8.50 to 11.50 percent range stipulated by the government.

  As a result, if Chunghwa Telecom abides strictly by the law, it will have to lower mobile phone rates in the future. However, such a reduction in rates would pose a serious threat to local mobile phone service providers.

  "We're in a situation where we want to lower the rates, but we can't. Private service providers would accuse us of taking advantage of our dominance in the telecom industry to suffocate them,"said a senior executive at Chunghwa Telecom who asked to remain anonymous. "But we know we'll have to lower the rates to benefit customers," he said.

  He added that Chunghwa Telecom's recent launch of the 099 personal number service serves as a good example of the problems a rate cut could create. Under the 099 service plan, the air time fee is set at only NT$0.06 per second, or NT$3.6 per minute for a 099 phone call made from a home or office phone set to a mobile phone set. The rate is NT$2.4 cheaper than the NT$6 per minute currently charged for a non-099 call made through the same means.

  As a result, private mobile phone service operators have accused the 099 charge plan as a "disguised move made by Chunghwa Telecom to reduce mobile phone fees." They even launched a united plea to the Fair Trade Commission (公平交易委員會) for an investigation into the case.

  "From what happened to the 099 service plan, do you think we can go ahead with cutting mobile phone rates just like that?" the Chunghwa Telecom executive said.

  It is highly likely that a decision by the company to cut mobile phone rates would pressure private mobile phone service providers to follow suit and lower their mobile phone rates. But that would reduce their profit margins.

  "Unlike Chunghwa Telecom, we are a young company," said an executive at a local mobile phone company. "We need to make reasonable profits to grow. As you know, the telecom business is a capital-intensive industry," she said.

  One of the biggest concerns is how Chunghwa Telecom is going to reduce the rates. For example, said the executive, "if it reduces the charges by offering a free installation fee, that would have no effect on us. If it decides to reduce air time fees, the impact would be profound," she said.

  Chunghwa Telecom's leading position in the mobile phone industry is reflected in its number of users. The company announced that it had reached the three million subscriber mark on Sept. 27, nearly one million users ahead of the biggest private mobile phone service provider, Pacific Communications Services Co (台灣大哥大). Pacific Communications recently announced that it now has two million users.

  In addition to its mobile phone business, Chunghwa Telecom also realized fat profits from its international phone and long-distance phone call businesses over the fiscal year 1998.

  In the international phone sector alone, the investment rate of return was 84 percent, four percent up from fiscal year 1997, while the long-distance phone sector saw a 79 percent return rate, up 19 percent from the year before.

  Indeed, only the city call business's 3.5 percent return rate was below the 8.5 to 11.5 percent profit range stipulated by the government.

  The executive at Chunghwa Telecom said it's very likely the company will reduce rates on international phone calls and long-distance phone calls in the future. However, he added that the decision will be made after the Legislative Yuan passes the company's budget plan for fiscal year 1999.

  Chunghwa Telecom realized NT$192.90 billion in revenues and NT$66 billion in pre-tax profits in the fiscal year 1998. In the fiscal 1997, the company registered NT$184 billion in revenues, and NT$58.90 billion in pre-tax profits.
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